The top 10 most widely held stocks in ESG investment funds

The environmental, social and governance polices of a company have become an important investment consideration. Check out these top 10 ESG stocks.

How green and sociable is your portfolio? Does it need some watering?! An easy first step is to see if it includes one of these 10 most-held stocks in ESG exchange traded funds (ETFs).

The Environmental, Social, and Governance (ESG) investment trend appears to have accelerated during the coronavirus pandemic but many believe that it will endure. Shifts in government policy towards net-zero emissions and corporate governance increasingly under the spotlight from big asset management companies mean that companies with strong EGS credentials stand to outperform those which don’t.

Which ESG ETFs?

This selection of stocks come from the largest ETFs in the United States and Europe by AUM (assets under management).

That includes:

• iShares’ ESG MSCI USA ETF (ESGU)
• iShares ESG MSCI USA Leaders ETF (SUSL)
• iShares MSCI USA ESG Select ETF (SUSA)
• iShares MSCI KLD 400 Social ETF (DSI)
• JP Morgan BetaBuilders Europe ETF (BBEU)
• Vanguard ESG U.S. Stock ETF (ESGV)
• Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG)

These funds were prepared by professional fund managers and make for a very good starting point in ESG. However, every portfolio manager will have different criteria for what defines a stock that qualifies as ESG. We will delve into the ESG characteristics of the top 10, but some extra due diligence is worth the time if deciding to invest in these ETFs and their components.

If you’re interested to find out more about investing in ESG ETFs, you can read more about it in our blog posts titled investing into ESG EFTs and ESG investing: Two “Niche” EFT ideas you have probably never heard of

Top 10 most held ESG stocks

To be clear, these top 10 stocks are not necessarily the most ESG-compliant stocks but are just the most widely held in ESG funds. The stocks just need to qualify for the fund but the reason for being part of the 10 holdings likely relates more to their overall investment potential.

You will likely be familiar with these companies because naturally it is the biggest companies with the most resources and deepest pockets that can incorporate ESG into their framework, even if it provides no immediate benefit to earnings, takes time away from other objectives and often means an increase in short-term costs.

So here is the top 10 ESG companies professional fund managers are investing in.

1. Procter & Gamble

P&G has created a set of sustainability goals in 2018 called ‘Ambition 2030’ which includes reducing use of petroleum in plastic packaging by 50%, ensure 90% of packaging is recyclable, detailed labelling of product safety and ingredients and the use of 100% renewable electricity in its manufacturing. Its products have historically been some of the biggest contributors to plastic waste but CEO David Taylor has provided some of the clearest leadership in ESG-related areas. Read more here: https://us.pg.com/environmental-sustainability/

2. Microsoft

Bill Gates’ company now run by Satya Nadella has promised to be carbon-neutral by 2030 and to have removed all the carbon from the environment that the company has ever emitted by 2050. The company also aims to be ‘water positive’ by 2030 by reducing consumption in its direct operations and increasing water availability in water-stressed regions that it operates. Read more here https://www.microsoft.com/en-us/corporate-responsibility/sustainability

3. Alphabet

Google-parent Company Alphabet made waves by issuing $5.75 billion worth of sustainability bonds in 2020, the largest ever green bond issuance in any company’s history. The proceeds of the sale will go towards new environmentally and socially responsible projects across eight key areas including affordable housing and support for black businesses. Read more here: https://sustainability.google/reports/environmental-report-2019/#data-centers

4. Amazon

Criticism of alleged mistreatment of its warehouse workers and paying zero federal US tax in 2019 need some overcoming. The company has an understandably huge environment footprint through all the logistics that make next day parcel delivery possible. The company emitted 44 million metric tons of CO2 in 2018, including indirectly. By 2020 it aims to be carbon neutral. Read more here: https://www.aboutamazon.com/sustainability

5. Visa

Visa partnered with GlobeScan—a sustainability research firm—to conduct a survey of consumers in 25 countries to explore current understanding, concerns, expectations and opportunities to support healthier and more sustainable lifestyles that will be good for people and the planet. Read more here: https://usa.visa.com/about-visa/operating-responsibly.html

6. Apple

Apple has a goal to be carbon neutral across its business, including products, by 2030 and aims to make its products with safer chemicals. The new iPhone 12 was made with completely recycled rare earth minerals. There are still some fundamental issues relating the working conditions in its suppliers, especially in China. Read more here: https://investor.apple.com/esg/default.aspx

7. Home Depot

As the biggest DIY chain in America, Home Depot can portably makes its biggest contribution to ESG causes through sourcing its supplies responsibly. For example Home Depot has a list of the 10 most vulnerable forest ecosystems and 40 endangered species of trees that it will not source its wood from. Read more here https://ir.homedepot.com/esg-investors

8. Disney

Walt Disney operates some of the biggest amusement parks in the world, demanding huge amounts of electricity and creating huge amounts of waste. It is however involved in a number of projects to reduce its footprint including one of the largest solar canopy energy projects in Europe and the ‘hidden Mickey’ five-megawatt solar array at Walt Disney World shaped in the form of Mickey Mouse.

Read more here https://thewaltdisneycompany.com/environmental-sustainability/

9. Salesforce (CRM)

Salesforce aims to support the conservation and restoration of 100 million trees over the next decade. Salesforce achieved net-zero greenhouse gas emissions globally and delivers customers a carbon neutral cloud software experience. Read more here: https://www.salesforce.com/company/sustainability/

10. 3M

3M was an early leader in the space of ESG with the establishment of its ‘Pollution prevention Pays program in 1975 and extending it to a 2025 set of sustainability goals. Te company’s Science at home program is popular with teachers and parents to give simple experiments that can be done at home by students age 6-12.

Read more here: https://investors.3m.com/about-3m/esg-information/default.aspx